Nov. 1 (Bloomberg) -- The U.S. economy will probably expand
at a 2 percent annualized rate in the final three months of the
year, less than economists projected at the start of the budget
impasse that resulted in a 16-day government shutdown.

The median projection of 71 economists surveyed by
Bloomberg yesterday compares with a 2.4 percent forecast in an
Oct. 4-9 survey. Gross domestic product, the sum of all goods
and services produced in the nation, will accelerate to a 2.6
percent growth rate in the first three months of 2014, unchanged
from the previous survey, economists said.

Fourth-quarter GDP will reflect a decline in government
output, estimated by the number of hours put in by federal
workers, as well as cutbacks at contractors. Growth will pick up
in the first quarter as the economy recovers from any shutdown-induced pause in business and consumer purchases.

“If you have a shutdown and people in the government
aren’t working, there’s an automatic effect on GDP,” said Lewis
Alexander, chief economist at Nomura Securities International
Inc. in New York. The negative effects of the budget
negotiations on business and consumer spending will subside in
the first quarter, he said, unless there’s “a repeat of the
brinkmanship we saw in October, even without a shutdown.”

Alexander projects 1.9 percent growth in the final three
months, before a pickup to 2.6 percent in the first quarter.
Economists at Nomura had estimated a 2.7 percent rate for both
quarters in the previous survey. The decline in hours worked by
government employees probably shaved 0.2 percentage point to 0.3
percentage point from growth in the current quarter, according
to Nomura.

Manufacturing Pickup

A report today showed manufacturing remains a source of
strength at the start of the fourth quarter. The Institute for
Supply Management’s factory index climbed to the highest level
since April 2011, the Tempe, Arizona-based group said.

The first of three reports on growth last quarter,
originally scheduled for release earlier this week, is now due
Nov. 7 as the shutdown kept federal agencies from collecting
data. The median estimate in a preliminary survey of economists
calls for a 1.9 percent gain in the three months ended
September. The U.S. expanded at a 2.5 percent annualized pace in
the second quarter.

The postponement of the government’s data releases has made
it difficult for economists to gauge the economy’s progress. The
shutdown probably inhibited what was already a sluggish pace of
growth at the end of the third quarter, said Michael Feroli,
chief U.S. economist at JPMorgan Chase & Co. in New York.

Losing Momentum

“It looks like September wasn’t a great month, and that
was pre-shutdown, so I think things are just kind of so-so minus
the shutdown,” Feroli said. “We’re only now starting to get a
look at October data. It’s generally what we would expect --
things seem to have slowed a little, but not a big break.”

JPMorgan economists forecast 2 percent growth this quarter
and 2.5 percent at the start of 2014. Feroli also estimates
about 0.25 percentage point will be trimmed from fourth-quarter
GDP because of the loss in government services, with an equal
amount shaved because of “spillover effects and lost activity”
elsewhere in the economy.

While the end of the shutdown on Oct. 17 helped stabilize a
measure of Americans’ outlook for the economy, households grew
more pessimistic about their finances and the buying climate as
the Bloomberg Consumer Comfort Index fell last week for a fifth
straight time. The gauge declined to the lowest level since
October 2012.

Waning Confidence

“If sentiment holds at these lower levels in the coming
months, that is likely to translate into lower spending activity
for both businesses and households,” said Millan Mulraine,
director of U.S. rates research at TD Securities USA LLC in New
York. The firm’s fourth-quarter estimate for GDP was reduced to
1.8 percent from 2.6 percent earlier in the month, while the
first-quarter estimate for 2014 was left at 2.4 percent.

The slump in consumer confidence may hold back the
household purchases that make up 70 percent of the economy as
the U.S. enters the holiday shopping season. Some Americans
already have been cutting back on non-essential spending. Las
Vegas-based Caesars Entertainment Corp., the largest owner of
casinos in the U.S., said fewer Americans have been making trips
to its regional locations.

“Generally in retail experiences across the country,
people are not as active as they’ve been in prior years,” Gary
Loveman, chairman and chief executive officer of Caesars, said
on an Oct. 29 earnings call. “That’s a troubling trend.”

The Federal Reserve said this week it is pressing on with
$85 billion in monthly asset purchases as part of its third
round of quantitative easing started in September 2012.

“The recovery in the housing sector slowed somewhat in
recent months,” the Federal Open Market Committee said at the
end of a two-day meeting in Washington. “Fiscal policy is
restraining economic growth.”